WE Soda announced two weeks ago that it was intending to list on the London Stock Exchange. The company, which is the world’s largest producer of natural soda ash, was reportedly hoping to raise £600m with a valuation of nearly £6bn. That would have potentially made it a blue-chip FTSE 100 share.
But now the Turkish-based firm has pulled the plug on its initial public offering (IPO), citing valuation concerns. Cue more declinist headlines about the demise of London as a global financial centre.
Here’s why this doesn’t worry me as an investor.
The IPO that didn’t happen
WE Soda produces soda ash, which is a necessary ingredient to make glass, powdered detergents, and various other products. Indeed, the company states that soda ash is the world’s 10th-most consumed industrial ingredient.
While not particularly exciting on the surface, this flotation would have been the UK’s largest listing so far this year. That’s largely due to the paucity of firms going public in recent times, both here and elsewhere in the world.
Some hoped that a successful testing of the water from this company would encourage others to follow. Alas, the deal has now fallen through on valuation grounds.
Alasdair Warren, the chief executive of WE Soda, commented: “The reality is that investors, particularly in the UK, remain extremely cautious about the IPO market and this extreme investor caution in London meant that we were unable to arrive at a valuation that we believe reflects our unique financial and operating characteristics“.
This indicates that there is a discrepancy (seemingly a big one) between what the company’s owners and potential investors think WE Soda is worth.
I’m not privy to the exact details, but it’s been reported that the company was aiming for a premium valuation to its industry peers. The valuation that came back from prospective investors was “unrealistically low“, according to the company.
Is this a UK problem?
This is being portrayed by parts of the financial media as more evidence that the UK is uniquely unattractive to public companies. But is that correct?
Well, the CEO also said that valuation was “not just a UK issue” but a “broader European issue“.
So this suggests that the valuation sought by the company is unlikely to be matched on other European stock exchanges. And, I’d add, it’s not guaranteed to be met stateside.
Takeaway
For an individual investor like me, it makes little difference whether a firm is listed in London or New York. It wouldn’t sway me either way. What matters most is the company’s fundamentals, its competitive positioning, and the value of the shares.
Again, I don’t know the financials of WE Soda. But it appears that its only two production facilitates, Eti Soda and Kazan Soda, are both in Turkey. For me, that lack of asset diversification would bring a fair amount of country risk.
Also, from my experience, rushing out to buy newly listed shares shortly after an IPO can be a mistake. I think it’s much better to wait and give the firm a few quarters to find its feet as a public company.
None of this should bother investors too much. There are already plenty of high-quality stocks on the market to invest in.
